Grayscale's new Ethereum and Solana staking ETFs will pay out staking rewards as cash dividends, but both networks are now considering protocol changes that could sharply reduce those rewards for all participants.
Ethereum and Solana are both moving toward protocol changes that could significantly reduce staking rewards, just as Wall Street launches new ETFs designed to pass those rewards through to investors as cash dividends. According to recent SEC filings, Grayscale's Ethereum and Solana staking ETFs will convert staking income to cash and distribute it to shareholders at least quarterly, with the new structure expected to take effect in early August.
Protocol Proposals Target Staking Yields
Developers on both networks are advancing proposals that would cut staking income at the protocol level. On Solana, the SIMD-0550 proposal would double the network's annual disinflation rate from 15% to 30%, accelerating the reduction in new token issuance. If adopted, this would lower modeled staking yields from 5.84% today to 2.25% within three years, and reduce the number of new SOL tokens entering circulation by nearly 19 million over six years. Ethereum researchers, meanwhile, have introduced EIP-8363, a draft proposal that would burn an increasing share of validator rewards as the staking participation rate rises, with the burn reaching 100% if about half of all ETH is staked.
Investor and Validator Impact
For investors, these changes mean lower staking income and potentially smaller ETF cash distributions over time. Under Solana's current schedule, a staker could earn roughly 13.15% in simple yield over three years, but the proposed schedule would drop that to about 9.89%. Ethereum's proposal would gradually eliminate net consensus rewards for validators as more ETH is staked, discouraging excessive validator growth and reducing dilution for non-staking holders. The trade-off is that validators and passive stakers would see their income shrink, while non-staking holders benefit from reduced token issuance and less dilution.
Market and Economic Rationale
Both networks frame these proposals as a way to tighten token supply and redirect capital toward higher-risk, higher-reward activities like lending and liquidity provision, rather than passive staking. By lowering the "risk-free" rate inside their ecosystems, Solana and Ethereum aim to make their tokens more attractive as scarce assets, similar to Bitcoin's supply narrative. This shift could also make it easier for asset managers to market these tokens to investors focused on scarcity rather than yield. The proposals come as institutional products like Grayscale's ETFs standardize the process of distributing staking rewards as cash, meaning any protocol-level reduction in rewards will directly translate to smaller payouts for ETF shareholders.
Risks and Trade-Offs
The proposed changes introduce new risks and pressures, especially for smaller validators who may struggle to cover fixed costs as rewards decline. On Ethereum, concerns have been raised that solo validators could be squeezed out, while large custodians and staking companies with economies of scale may be less affected. For DeFi users, lower staking yields could reduce the hurdle rate for participating in lending and liquidity pools, potentially increasing activity in those sectors. The debate also highlights the growing influence of asset managers and staking businesses, which now have a direct financial stake in how protocol rewards are set. As seen when FG Nexus liquidated its Ethereum holdings after earning minimal staking rewards, as covered in this EgonCoin report, changes to staking economics can have real consequences for treasury strategies and investor returns.
As of July 2026, Solana's annualized staking yield stands at approximately 5.8%, while Ethereum's varies based on network conditions but has recently ranged between 3% and 4%. According to Grayscale's filings, the new ETF structures are expected to begin distributing staking rewards as cash dividends to shareholders starting in August, with distributions occurring at least quarterly. The proposed protocol changes, if implemented, would gradually reduce these yields over the next several years, directly impacting both individual stakers and ETF investors.
Staking rewards are a core mechanism for securing proof-of-stake blockchains, but they also create ongoing dilution for non-staking holders. By reducing issuance, Ethereum and Solana are betting that scarcity will become a more compelling narrative for investors than yield. This approach mirrors Bitcoin's long-standing emphasis on fixed supply, but it also means that staking as a source of income may become less attractive over time. The outcome will depend on how investors, validators, and asset managers respond to the new balance between scarcity and yield, and whether token appreciation can offset the loss of staking income for those who rely on it.
